Portugal's long-term education strategy pays off

Portugal’s long-term educational policies are paying dividends, with a high proportion of young people speaking more than one language and even sporting a master's degree. This in turn is attracting international companies and creating conditions that could lure many overseas Portuguese back. Courtney Fingar reports.

One of the difficulties of politics – and the reason for many short-sighted policies – is that the fruits of government labours are not always enjoyed until many years later. Investments in education are among those that take some time to germinate.

But patience can pay off, as Portugal is finding out. Improvements made to the educational system over the past few decades are now bearing fruit, with a resultant influx of skills-seeking foreign investment, which in turn is helping chip away at the unemployment rate.

Schoolchildren who started their studies after the educational system was reformed and modernised are now graduating and entering the workforce, creating excitement over what many are calling the most talented and skilled generation modern Portugal has ever produced.

A lesson in patience

Portuguese students used to underperform by European standards, but since 2010 the country has improved significantly in the OECD Programme for International Student Assessment (PISA) rankings.

In the 2015 standings, Portugal ranked well above EU and OECD averages for the percentage of people aged 25 to 34 years old with a master’s degree or equivalent, at 21%, ahead of countries such as Poland, Czech Republic, Spain, Italy, France and Ireland. The average Portuguese 15-year-old student, when scored for reading literacy, mathematics and science knowledge, outperforms the OECD average, according to the PISA ranking.

This level of quality, combined with a cost base that remains low by western European standards and a youth employment rate that is still in double digits, is proving a draw for foreign companies in shared services, technology and other sectors. A renewed interest by expats in returning to their roots in Portugal – sparked by Brexit in the UK, among other factors – is adding to this already attractive talent pool.

Increased FDI and a buzzing new start-up scene is creating enticing new job opportunities, all the more reason for overseas Portuguese to return, or ambitious new graduates to stay home in the first place, creating a virtuous circle, if a more competitive labour market.

A satisfied customer

“This is the best generation we’ve seen in Portugal in terms of skills, and they want to stay here. The unemployment rate is better lately but the percentage of unemployment among young people is still very high,” says Isabel Martinez, finance director for Europcar Portugal, which has a shared services centre just outside Lisbon.

“We are working here in seven languages, with 17 nationalities represented, and all workers in the centre are fluent in English – it’s a requirement. We’re recruiting locally, young graduates as well as returning expats.” Portuguese young people have high fluency in English as the language is mandatory in schools from the age of six, and it is common for Portuguese young people to speak two or more foreign languages.

In looking to centralise finance back-office functions four years ago, Europcar considered all seven European countries where it already had offices, weighing up human capital, facilities, costs, subsidies and air connections. Lisbon came out on top. There are now 340 employees at the centre, working in finance functions such as accounts payables, pure accounting and treasury, as well as two expanding areas of pricing and customer support.

While attrition rates overall are good in Portugal, staff retention has become a recent concern, with competitors coming in hoping to snap up these well-trained workers. Ms Martinez notes that the office park where Europcar is located was all but empty a few years ago but is filling up fast.

Competition for workers

“We find that the training in Portugal is very good. But other companies are now paying attention to what Portugal has to offer and there is pressure on the supply of the workforce. The problem is most felt in IT areas,” says Peter Händel, chief financial officer at Siemens Portugal, which has about 2000 employees in Lisbon and plans to add 300 IT services jobs.

US-based technology giant Cisco Systems chose Portugal a decade ago as one of its most important operational centres in Europe, the Middle East and Africa and now employs 400 people from 36 countries in Porto Salvo, in the Lisbon metropolitan region. They handle a diverse range of functions from internal applications, HR, marketing sales and engineering to finance, global technical assistance centre and virtual support, and cybersecurity solutions.

“We looked at all of Europe [for expansion sites] and chose Portugal because of the talent – and talent levels have even improved over time. Portuguese universities are appearing regularly in top rankings globally, and we can recruit easily from these universities. Language skills are also good. And the quality of life helps to attract talent from elsewhere,” says Sofia Tenreiro, general manager at Cisco Systems Portugal and president of the American Chamber of Commerce in Portugal.

“We need more young people trained in technology, the same challenge as anywhere, but the government has been very active in that area and government support for innovation is strong. We are repositioning Portugal as a technology hub,” she adds.

More companies are taking notice. In May 2017, Mercedes-Benz announced the opening of its first global digital delivery hub in Lisbon and is looking to recruit 125 digital experts in the areas of software development, app programming, big data, cloud computing, Java, Java script and Adobe Experience Manager development.

“The Portuguese capital is increasingly establishing itself as the new place to be for the digital world: it is precisely here that Mercedes-Benz wishes to drive its future digital transformation from premium automobile manufacturer to premium mobility service provider,” the company said in a statement.

Employment issues

Such announcements have added to the buzz surround Portugal’s tech scene, and injected confidence into a country that suffered a sovereign debt crisis requiring an EU-IMF bailout in 2011 and experienced an exodus of young people fleeing due to high unemployment levels. The unemployment rate in Portugal fell to 10.1% in the first three months of 2017, its lowest rate since the last quarter of 2009. Youth unemployment also dropped, but remains alarmingly high, at 25.1%, according to figures from Trading Economics and Statistics Portugal.

“As a proud Portuguese, I’m glad the world is recognising the good technology skills of Portugal and that our IT professionals have more options and jobs, especially after the crisis. This will help encourage some talented Portuguese who left to find work abroad to come back,” says Sandra Neto dos Santos, manager of Panalpina’s IT Centre of Excellence in Lisbon and a vice-president in the company.

Panalpina is a Switzerland-based provider of forwarding and logistics services, and its Lisbon site administers all the IT services for the company’s global operations, which consists of more than 500 offices worldwide. The office has 50 employees now but could have as many as 80 by the end of the year if recruitment goes to plan.

“We want people with good technical expertise but who can mix and mingle, and work well together – so, skills but also the human factor,” she says. “There are cheaper places in central and eastern Europe but studies show that Portuguese universities are producing graduates with good technical skills. That, combined with the proactive Portuguese approach to work, is very attractive.”

Proximity to, and collaboration with, academic institutions such as Instituto Superior Técnico, a school of engineering that is part of the Universidade de Lisboa, and Universidade Nova de Lisboa has proven helpful already, she says.

A force to be reckoned with

Employers in industrial sectors also give high marks to the Portuguese workforce. Jorge Ferreira, Portugal country manager for IKEA Industry, applauds the “general attitude towards work” at the company’s 200,000-square-metre factory in the northern city of Paços de Ferreira. It produces nearly 60,000 pieces of furniture a day and employs about 1400 people.

“The workforce here, at all levels, is very flexible, pragmatic and hands on,” he says. “Although this facility here is relatively new [established in 2008], Portuguese employees are already working in many international roles across the group, which means we found our feet very quickly.”

With Lisbon heating up quickly in the shared services and IT space, the search for lower costs and available workers is sending some companies north to Portugal’s second city, Porto, which is increasingly attracting finance and HR functions, or third city Braga, which is specialised in IT services.

Braga, a city with a history that dates back to Roman times, is becoming a magnet for young people, drawn to its atmospheric city centre, low costs of living and thriving tech scene. Forty-five per cent of the population is under the age of 30, and the city has been recognised recently by the EU’s Erasmus programme as a '100% Youth City' after previously reigning as European Capital of Youth in 2012 and Ibero Capital of Youth in 2015.

The influx of young talent and an existing scientific research cluster led by the International Iberian Nanotechnology Laboratory (INL) has attracted the attention of new arrivals such as Fujitsu, which invested a year ago and already employs 300 people in Braga, and Accenture, which announced plans to set up a software centre employing 100 engineers.

Meanwhile, German engineering and electronics multinational Bosch is expected to create 1000 new jobs in Braga in the next two years, bringing its total headcount in the city to more than 4000. “Bosch was already the biggest private contractor here but has almost doubled its presence, and it has evolved from just a production centre to engineering. It shows we have the competencies and skills for advanced functions,” says mayor Ricardo Rio, whose strategy for the city is to connect art, culture and science with innovation and technology.

R&D credentials

The presence of INL lends Braga and the surrounding area serious research and scientific credentials. “We’re leveraging INL to assist economic development,” says Carlos Oliveira, president of Invest Braga. Jointly established by the governments of Portugal and Spain to conduct fundamental and applied research on nanotechnology, INL has roughly 200 employees with researchers from 25 countries, and is one of the few specialised nanotechnology institutes in Europe.

“There are extraordinary scientific and technical competencies in Portugal. We have a very nice ecosystem: knowledge, expertise, industry with an innovative mindset, incentives, and an entrepreneurial spirit. The only thing missing is international awareness of the competencies and of what is being done in Portugal,” says Paula Galvão, business and strategic relations officer at INL.

R&D is a key area of focus for Portugal as it seeks to establish a reputation for high-value science and technology activity. “Portugal offers very strategic support for R&D at the country level; we have one of the best programmes in Europe for this,” says Luis Castro Henriques, chairman and CEO of national trade and investment agency Aicep Portugal Global.

A healthy attitude

Another linchpin of Portugal’s research community is the Champalimaud Foundation, created in 2004 by endowment from the Portuguese entrepreneur António Champalimaud. With an endowment of €500m, it is one of the largest European foundations dedicated to scientific research in the field of medicine and supports research in neurosciences, cancer and vision, and its clinical centre offers oncological treatment and diagnosis services both in outpatient and inpatient settings. Located in Lisbon, the foundation has 240 scientists and 500 total employees.

“The quality of the Portuguese scientific and technological system has been recognised and the country’s profile in terms of scientific production and qualified workforce has experienced a remarkable evolution,” says António Portela, CEO of pharmaceutical company BIAL, which is doubling its R&D centre at Trofa near Porto from 1490 square metres to almost 4000 square metres, comprising an investment of €5m.

BIAL currently channels more than 20% of its annual turnover to R&D, focusing on neurosciences and cardiovascular diseases. Since 1993, the company has synthesised more than 12,000 new molecules and patented six new medicinal products on a worldwide basis.

“Portuguese scientists and researchers are taking part in the international context, the number of registered patents keeps growing, new R&D centres and start-ups are appearing, and new products and devices are already being exported and becoming competitive. Portuguese exports in the area of health have doubled in the past six years,” says Mr Portela.

Economic struggles

After long being regarded as what Mr Henriques describes as “a country of sun and olive oil”, Portugal is now being taken seriously as a country for innovation – even if its international reputation still needs burnishing. The biggest challenge is in avoiding a reversal, and enjoying the newfound success while not being complacent and taking its foot off the gas pedal. Economic recovery has taken hold, and in the first three months of 2017 Portugal's GDP saw its fastest rate of growth since 2007.

However, high government debt and banking sector problems are limiting investments in infrastructure and other public assets. Many educational institutions are still reeling from the financial damage of the crisis and have seen their budgets slashed. With economic growth accelerating, the time to invest in education and other FDI-friendly realms is now, lest the moment be lost.

“We’re in a good moment now but for the future we need to keep fostering this fantastic talent we have and keep understanding that it’s a cornerstone of our competitiveness,” says Mr Henriques.

Siemens’ Mr Händel seconds this. “The starting point here was labour cost arbitrage, but that is changing so the quality has to keep up, and as employers we need to be prepared to pay more than market price. We shouldn’t look only at costs,” he says.

“Portugal’s success in technology is not just hype – this is something that is growing step by step and is sustainable. But we have to keep thinking of investments and reforms needed for the future. Growth will come and go, and public investments need to happen in growth times,” he adds.

In focus: Portugal's innovation streak

Portugal’s unemployment problem has made job creation an urgent priority in the country, and sparked an awareness that jobs and growth must come from domestic, organic sources as well as from abroad. Tech start-ups are seen as essential to the recovery from past economic woes but also for the establishment of an innovative, future-led economy.

“Everything being done as public initiatives is because of the awareness that we need innovation and to create employment, which is more likely to come from start-ups because they can move and grow faster,” says Sofia Tenreiro, general manager at Cisco Systems Portugal and president of the American Chamber of Commerce in Portugal.

She applauds the “good programmes and incentives for start-ups and incubators” as well as government efforts to address liquidity weaknesses by trying to attract more venture capitalists and investors. “The focus on innovation in Portugal has been amazing. The start-up ecosystem and support around it helps our innovation [as a large company] too. Start-ups are challenging existing companies to be more innovative,” says Ms Tenreiro.

Hub status

Portugal has not traditionally been thought of as a start-up hub, but that is changing rapidly. Landing the Web Summit, Europe’s largest technology conference, in 2016 was celebrated as an occasion to show that Lisbon had arrived. Founder Paddy Cosgrave said the decision to move the event from Dublin to Lisbon would allow Web Summit to tap into the local start-up scene as well as make use of the city’s hospitality infrastructure and event capacity. More than 50,000 people attended the event last year, which is set to repeat in Lisbon this November.

“Web Summit coming here was a big win, and gave a lot of international visibility to the start-up community in Portugal,” says Ms Tenreiro.

“Right now there is a nice constellation of stars,” says Miguel Fontes, executive director of incubator Startup Lisboa, pointing to the fact that the current government is populated with entrepreneur-friendly ministers who are prioritising support for start-ups.

Prime minister António Costa was mayor of Lisbon during the inception of Startup Lisboa and supported the initiative, while secretary of state for industry Joao Vasconcelos is a former head of the programme and a passionate advocate for start-ups.

Access to capital is still the missing piece of Portugal’s start-up puzzle. “Venture capital is the weakness of our ecosystem. When a Portuguese start-up is raising money it needs to go abroad. Absence of liquidity is a problem we have as a national economy, even worse than elsewhere in western Europe,” says Mr Fontes.

The biggest gap is in seed capital, according to Carlos Brito, pro-rector at the University of Porto for innovation and entrepreneurship and director of Uptec, Porto University’s 30,000-square-metre science and technology park, where 800 people work and 200 companies are located. “If you want to raise big money at the venture capital level you can go to the US, but there is a gap at the smaller end, when you need €100,000 to €200,000 of seed capital, for example,” he says.

Among the support schemes now being offered by the government to try to address some of the shortcomings are a 'start-up voucher' that provides a base salary for a year for aspiring entrepreneurs; tax incentives for private individuals to invest in start-ups; and €200m in matching funds for investments.

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